This is a weekly tutorial on the most compelling opportunities in yield farming, written by our friend DeFi Dad, an advisor to The Defiant and Head of Marketing and Portfolio Support at Fourth Revolution Capital.
Disclaimer: All opinions expressed by DeFi Dad are solely his own opinion and do not reflect the opinion of 4RC or The Defiant. DeFi Dad disclosed he does not hold TOKE but his team at 4RC did invest in Tokemak before joining 4RC. He wishes to disclose this as he could benefit from future upside in TOKE. This post is for informational purposes only and should not be relied upon as a basis for investment decisions. Please do not follow any opinion as a specific strategy.
Background on Protocol: A new DeFi protocol called Tokemak recently launched its “DeGenesis” event to distribute the native token TOKE. This token will govern its protocol devoted to single-sided liquidity provisioning.
To understand Tokemak, it helps to familiarize yourself with Bancor’s pioneering single-sided LPs, which launched almost a year ago. Single-sided LPs allow liquidity providers to lend a single asset to be paired with other assets in AMM (automated market-maker) liquidity pools, and hence avoid the dilemma of impermanent loss. For years, DeFi LPs have risked their money in liquidity pools like Uniswap, SushiSwap and Balancer, in order to earn trading fees and in some cases, liquidity mining rewards. The growth of Bancor’s trading volume with upwards of $1.6B TVL has clearly demonstrated there is a demand among DeFi LPs for single-sided exposure.
Enter the first new player in single-sided LPs: Tokemak!
With its planned launch to begin directing liquidity in the coming weeks, Tokemak promises to allow “for simple crowdsourced liquidity and democratized liquidity direction.” As a new liquidity protocol, Tokemak will aim to decentralize the coordination of a market maker and allow any DeFi LP to easily contribute liquidity with a single asset and thereby avoid impermanent loss.
Post-DeGenesis and The Start of TOKE Farming Pools
Today, the Tokemak core team and community have completed their “DeGenesis,” where early supporters committed ETH and USDC in treasury reserves, which were eventually swapped for their native governance token, TOKE. With this milestone completed, there are now 5 farming opportunities live on Tokemak.
ETH and USDC Genesis Pools for Private Farming: A little less than one week ago, these two pools launched and will last only two weeks. Since the DeGenesis reached “a threshold of committed” ETH and USDC, those participants were given the chance to privately farm TOKE with ETH and USDC pools. On the Tokemak app, they show as the 2 Genesis Pools on the far left, earning over 200% APR in TOKE rewards. If you’re not in them, you can ignore them for now as they are only available the first two weeks to those who participated in the DeGenesis, but both of these Genesis Pools will then open to the public after this two week private farming period. I would anticipate the TOKE rate of rewards will normalize (decrease) as more enter the ETH and USDC staking pools.
TOKE Staking Pool: This is one of three pools available to immediately begin farming TOKE. With $23.6M TVL, it’s estimated to be earning 127% APR in TOKE rewards (4,900 TOKE per day). Rewards are earned daily, but claimable weekly. First rewards will be claimable starting one week after rewards emissions began, in a few days from today.
TOKE/ETH LP Pools: The other two available farms involve staking a SushiSwap TOKE/ETH LP or a Uniswap v2 TOKE/ETH LP. The SushiSwap LP boasts $10.8M TVL, earning 755% APR in TOKE (13,300 TOKE per day) and the Uniswap LP has $11.6M TVL, earning 705% APR in TOKE (13,300 TOKE per day). Same as the TOKE staking pool above, rewards are earned daily and claimable weekly. First rewards will be claimable starting one week after rewards emissions began, in a few days from today.
These pools are expected to run for the “coming weeks until liquidity direction begins.” I am not sure of how many weeks but I would recommend joining the Tokemak Discord and following Tokemak on Twitter for updates.
Opportunity: Today, I will share how I can earn up to 127% staking TOKE, 705% APR as a TOKE/ETH LP in Uniswap, or 755% APR as a TOKE/ETH LP in SushiSwap.
Time to Complete: 10 minutes if paying the recommended FAST gas price or higher on gasnow.org.
Estimated Length of Rewards Program: The two Genesis Pools will become available in about one week to the general public and the other three pools I’m covering are expected to last for “the coming weeks until liquidity direction begins.”
Gas + Protocol Fees: Based on gas prices between 40-60 Gwei on Ethereum, it should cost $20-$50 to participate in this liquidity mining.
Fees: Other than the usual Ethereum network fees you pay as gas, the only other fee to consider is 0.3% if one trades on SushiSwap or Uniswap prior to depositing the appropriate ratios of assets as an LP.
Risks: As always, this is not financial advice and you should do your own research. The following are risks when participating in this opportunity.
- Smart contract risk in Tokemak, SushiSwap, and/or Uniswap v2.
- Oracle failure
- Liquidity crisis
- Systemic risk in DeFi
- Pegged assets de-pegging
- As an LP, you’re likely to experience some impermanent loss.
- First, if I participate in the TOKE staking pool or either LP in SushiSwap or Uniswap, I will need to go to the Tokemak app, connect my Ethereum wallet, check the estimated pool APRs, and determine which of them I’m wanting to participate in.
- I might consider just the TOKE staking at 127% for the simplest farming and accumulation of TOKE.
- However, I might also wish to earn a higher yield rate while remaining 50% exposed to ETH as TOKE goes through price discovery.
- Second, regardless of which pool I’ll farm, I’ll need to trade for some TOKE. I can go to a DEX aggregator like Paraswap to ensure I get the best rate between SushiSwap and Uniswap TOKE liquidity. The contract address for the TOKE token in case it’s not listed on Paraswap is: 0x2e9d63788249371f1dfc918a52f8d799f4a38c94
- After buying some TOKE, I can easily start staking TOKE to earn about 127% APR.
- I’ll click DEPOSIT TOKE and follow the prompts.
- It will require me to Approve spending my TOKE and then Deposit the tokens.
- If instead I prefer earning a potentially higher yield rate with the SushiSwap LP or Uniswap LP for TOKE/ETH, I can consider whichever is higher or where I prefer providing liquidity. I will need 50/50 proportions of TOKE + ETH since Zapper hasn’t listed either LP yet for single-asset deposit. Either LP will require three transactions: two approvals + one deposit.
- To provide liquidity for TOKE/ETH on SushiSwap, I go here.
- To provide liquidity for TOKE/ETH on Uniswap v2, I go here.
- After I deposit into either LP, I can return to the Tokemak app and click the corresponding DEPOSIT SUSHI LP or DEPOSIT UNI LP.
- I specify the maximum amount to deposit and follow the prompts to Approve and Deposit my LP tokens.
- I’m done! Now, I can track my earned rewards under the DASHBOARD tab and choose to claim those TOKE rewards after each weekly cycle completes. Currently, there are three or four more days before TOKE rewards are claimable.
About Author: DeFi Dad is a DeFi super-user, educator and investor. He and his team at 4RC (Fourth Revolution Capital) invest in teams building the next great protocol, app or tool in DeFi, NFTs, and Web3. You can subscribe to his YouTube channel at defidad.com and follow him on Twitter.